Does Space Affect Search? A Theory of Local Unemployment

Etienne Wasmer and Yves Zenou

No 2157, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The spatial dispersion of economic agents is an immediate determinant of informational imperfections. We investigate how this dispersion creates search frictions and thus rationing. For that, we develop a model of local labour markets in which workers' search efficiency is negatively affected by distance to jobs. Workers' location in a city is endogenous and reflects a trade-off between commuting costs and the surplus associated with search. Different configurations emerge in equilibrium: notably, the unemployed workers may reside far away or close to the jobs. The labour market equilibrium itself depends crucially on these urban equilibria since the aggregate information about economic opportunities depends on the shape of the city. We show that there exists a unique and stable market equilibrium in which both land and labour markets are solved for simultaneously. We then decompose unemployment in two parts: the level reached if all agents were residing in the same location and an additional term due to the spatial dispersion.

Keywords: Equilibrium Unemployment; Local Labour Markets; Matching; Urban Land Use Equilibrium (search for similar items in EconPapers)
JEL-codes: E24 J41 R14 (search for similar items in EconPapers)
Date: 1999-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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